Score One For The Trolls

May 28, 2015 at 9:22 am Leave a comment

The Supreme Court feels your pain when it comes to those increasingly ubiquitous demand letters sent to your credit union by Patent Trolls out to shakedown your credit union for using technology which allegedly  violates an obscure paten but there is not much it  can do about it.  That’s the takeaway from a case decided yesterday by the Supreme Court.  The Court is clearly frustrated with the state of patent law.  Hopefully Congress shares its frustration.

Let’s say you buy a cutting edge ATM.  If a patent holder feels that the ATM maker is using technology for which they have a patent your ATM maker could be sued not only for using the patented technology without permission but also  for inducing third party’s-like your credit union-to violate the patent  by buying the ATM.

The Issue  debated in Commil USA, LLC v. Cisco Sys., Inc., No. 13-896, 2015 WL 2456617,  (U.S. May 26, 2015)(  was whether a company could defend itself against inducement claims by proving that it had a good faith belief that it was not violating a patent.  The Court said no.  This means that, so long as my fictitious  ATM maker was using technology that violated a patent,  it  violated the law by inducing your credit union to buy its ATM regardless of how earnestly it believed it  was doing nothing wrong.

This clearly is a nice win for patent Trolls, those companies that specialize in buying up patents and then shaking down companies with threats of lawsuits unless they pay them. Credit unions have seen their Demand Letters.   A victory for Cisco would have made the patent trolls business model less cost effective.

In the closing paragraphs of his majority opinion Justice Kennedy almost apologetically explained that    “{S}ome companies may use patents as a sword to go after defendants for money, even when their claims are frivolous. This tactic is often pursued through demand letters, which may be sent very broadly and without prior investigation, may assert vague claims of infringement, and may be designed to obtain payments that are based more on the costs of defending litigation than on the merit of the patent claims.” He reminded the district courts that hear these cases that “If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits “and award attorney’s fees to prevailing parties in “exceptional cases. ”

When a justice really disagrees with a decision they signal their displeasure by reading their dissent from the bench.  The majority’s decision drew the ire of Justice Scalia, who complained that it “increases the in terrorem power of patent trolls” That is a bad thing.

The need to protect patents was considered so important by our Founders that they put it in the constitution.  They undoubtedly thought they were fostering innovation.  Today the law is being used to stifle innovation via the threat of lawsuits.  The system is a serious mess that is beginning to hurt our economy. It’s time for Congress to step in so that paten law furthers innovation instead of legal careers

Freddie to offer Free Underwriting

On June 1st it’s going to get a little cheaper to underwrite loans to secondary market standards.  Freddie Mac has announced that it will no longer charge $20 to run applications through its Loan Prospector automated underwriting system.

Will Fannie Mae be following suit? Not if it can help it.  This morning’s American Banker quotes a Fannie Mae spokesperson explaining that its automated underwriting service is a valuable tool whose “value to lenders is clear.” Translation: Don’t expect Fannie to follow suit unless it loses market share.  The paper points out that the price reduction is a sign of renewed competition between the Government-supported housing behemoths.

So the Alice In Wonderland World that is the post Mortgage Meltdown housing market gets even stranger.  The bailed out and bankrupt GSEs are not only continuing to act as the backbone of the secondary housing market but they are back to competing against each other.  I’m happy for those of you who are going to save money but this is an awfully strange way to make housing policy.


Entry filed under: Legal Watch, Mortgage Lending. Tags: , , .

The Most Important Proposal of the Year Will The State Be Able To Deposit Funds In CUs?

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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